Budget reveals wellbeing will cost more than Rules allow
The figures announced in last week’s Wellbeing Budget stretches the Government’s self-imposed Budget Responsibility Rules (keeping the level of net core crown debt to 20 per cent of GDP within the first five years of taking office) to its absolute limits. While they’ve announced that they won’t be keeping themselves to this limit once this 5 years ends, I think the Government is already in a position where it can choose to meet its spending commitments or its debt commitments but not both. If things go really badly it could well fail to deliver on both. It might well be better to come clean now and just admit they need to shift the Budget Responsibility Rules.
Writing numbers in a spreadsheet is easy… Actually spending the money is much harder.
While Treasury’s current high growth forecasts predict a higher level of GPD and more tax revenue, other respected forecasters are warning these predictions appear to be on the high side. Thus over time the government is going to be squeezed by its increasing expenditure and falling revenue. In order to meet its debt targets it’s going to have to either underdeliver or move the debt goal posts.
Let’s talk about under-delivery first. Writing numbers in a spreadsheet is easy. Agreeing to spend a billion dollars on regional development or mental health makes for good headlines. Actually spending the money is much harder. It’s not just Kiwibuild that’s tough to make good on. Apportioning dollars to mental health doesn’t mean we have the required number of specialists and nurses ready and waiting to meet demand. Facilities will need to be built, people will need to be trained, and DHB’s with all their bureaucracy will be in the thick of it. Over time things will come on stream, but the reality is by this time next year we will still be figuring out what to do.
All combined this makes a bit of a mockery of the agreed Budget Responsibility Rules as they stand.
And when it comes to keeping our debt within target, a certain amount of un-delivery will help. The Government can also follow National’s lead and use some creative accounting rules to ensure that some Government debt is not counted as core-crown debt. We have seen this already with $6.5b of borrowing for social housing by Housing New Zealand which is technically off the core crown books. Even Treasury thought this was a bit creative. All combined this makes a bit of a mockery of the agreed Budget Responsibility Rules as they stand. It would be more prudent, responsible, and cost us less in interest payments to just shift the goalposts now.
We don’t need to worry though. In some respects the Public Finance Act has already done its job. The need for transparency and forecasting means most can already see the writing on the wall. Yes, people want to have good mental health. Yes we want low decile schools to receive good funding. Yes we want benefits to be indexed to wages not the CPI. Let’s not kid ourselves that we can do all this and meet an arbitrary debt rule.